An economic outlook for Australian businesses

October 2023

9 minutes reading

5 questions answered on the Australian economy

What’s ahead for the Australian economy? We share five updates for Australian businesses as 2023 draws to a close.

1. What’s the outlook for the Australian economy?

The Australian economy is in sharp focus for business leaders right now, and for many, it’s a pain point.

In fact, in our 2023 real estate benchmarking research, business owners cite deteriorating economic conditions as one of the top drivers of profitability decline.

Business leaders can expect the economy to continue slowing in the coming months, though Australia is in a position to avoid a recession, given its strengths such as healthy population growth.

“There are a few big issues for the Australian economy at the moment. One of them is inflation. That is obviously placing pressure on household budgets, and it also means that interest rates are likely to remain high for the time being,” says Macquarie Group Lead Global Economist, Dan Fabbro.

“The second issue is falling productivity in the economy. Productivity is ultimately one of the key drivers of prosperity in an economy, so the fact that it is falling is a concern. It’s also a concern from an inflation perspective – if productivity keeps falling, it will make it harder for inflation to come down,” he says.

“The third key issue is housing affordability. At the moment, housing affordability in some metrics is about as bad as it’s been since the late 1980s.”


“There are a few big issues for the Australian economy at the moment. One of them is inflation. That is obviously placing pressure on household budgets, and it also means that interest rates are likely to remain high for the time being.”

Dan Fabbro

Lead Global Economist, Macquarie Group

2. Where will the cash rate go from here?

The Reserve Bank of Australia (RBA) remains resolute in its focus on inflation. How inflation tracks will ultimately decide whether it raises the cash rate again in the coming months.

The central bank is particularly focused on components of inflation that have had continuously strong growth, such as services prices. Factors that affect business cost pressures, such as wages, are also in its sights.

The risk remains that if inflation doesn’t come down as expected, more rate rises could be on the table.

“We think most of the heavy lifting has been done by the RBA, and that really reflects the fact that the economy has started to slow, and inflation has already started to come down quite a bit from its peak. Although inflation has further to go, we are expecting it to come down to the RBA’s inflation target range by the end of next year,” says Fabbro.

“At the moment there is still a risk of further increases in the cash rate, and that simply reflects the fact that inflation still does remain high, and there is always a risk that inflation has a little bit more inertia than we are expecting.”

3. Will the pace of property price gains continue?

Residential property prices in Australia are almost back to their 2022 peak, after a strong rebound at the national level this year.

The rebound is slightly unusual in the context of Australian history, in that housing prices don’t typically increase during periods where the cash rate is rising. That said, at this stage, the pace of growth looks set to slow for the months ahead. Sydney and Melbourne, often the cities that climb and fall the furthest, are already showing signs of settling.

"We are expecting that house price growth is likely to slow from the pace we have seen recently, and that primarily reflects the fact that housing affordability is very stretched,” says Fabbro.


“Generally we’ve been expecting that the labour market would be loosening as the economy slows down and that is starting to happen, although we are in the very early stages of that.”

Dan Fabbro

Lead Global Economist, Macquarie Group

4. What is the outlook for inflation?

As mentioned, inflation is a paramount focus for the RBA, which has labelled high inflation as “corrosive and damaging” if it’s persistent.1

“The economy doesn’t work well when inflation is high. It is harder for businesses to plan, and people spend time protecting themselves against inflation rather than on more productive activities,” the RBA’s former Governor, Philip Lowe, said in a speech earlier this year.

Inflation in Australia is currently sitting at 5.4%, down from its high of 7.8% last year. Though inflation is trending downwards, it is still relatively high, and has a while to go before it reaches the RBA’s target of 2-3%.

“Although inflation has come down quite well from its peak in 2022, it still has further to go,” says Fabbro.

“We are expecting it will take at least another year before it comes down to the RBA’s target range.”

5. What is the outlook for the labour market, is the tightness easing as expected?

As Australian business leaders are well aware, the labour market in the last couple of years has been at its tightest since the 1970s. That is – it has been about 50 years since it has been this difficult to bring in new talent.

The conditions in the labour market are a result of a strong economy, with a strong demand for workers. However, as the economy slows, it’s likely that demand will weaken, meaning the labour market’s tightness will begin to ease.

“Generally we’ve been expecting that the labour market would be loosening as the economy slows down and that is starting to happen, although we are in the very early stages of that,” says Fabbro.  

The availability of talent, and the cost to attract and retain them, remains a persistent issue for Australian leaders. You can read more about how to remain competitive with new candidates here

Your business needs 

We hope our insights help support your ambitions, as we move towards a new year. At Macquarie Business Banking, we’d welcome the opportunity to speak with you as you navigate this shifting environment.

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To discuss any opportunities for your business, please speak with your Macquarie Bank Relationship Manager or request a call. 


Additional information



This article has been prepared by Macquarie Business Banking, a division of Macquarie Bank Limited ABN 46 008 583 542 AFSL and Australian Credit Licence 237502 for general information purposes only, without taking into account your personal objectives, financial situation or needs. Before acting on this general information, you must consider its appropriateness having regard to your own objectives, financial situation and needs. The information provided is not intended to replace or serve as a substitute for any accounting, tax or other professional advice, consultation or service and nothing in this article shall be construed as a solicitation to buy or sell any financial product, or to engage in or refrain from engaging in any transaction.

The information in this article was finalised on 25 October 2023. Past performance should not be taken as an indication or guarantee of future performance and no representation or warranty, express or implied, is made regarding future performance. Economic conditions may change.

The analysis provided in this article is based on information obtained from sources believed to be reliable but Macquarie does not make any representation or warranty that it is accurate, complete or up to date. Macquarie accepts no obligation to correct or update the information or opinions in it. Any opinions expressed in this article are subject to change without notice. No member of Macquarie accepts any liability whatsoever for any direct, indirect, consequential or other loss arising from any use of such information.